Why Is This Medtech Startup Creating so Much Excitement?

Of all the innovations taking place in the economy, I’m probably most excited about the ones happening in healthcare.

The medical startup you’ve probably never heard of before – GRAIL – is a good example of why.

GRAIL is about to complete the biggest round in biopharma history. In just three months, it has garnered $900 million.

Before it’s all done, that amount will probably exceed $1 billion.

Now, let’s be clear. This $1 billion is not its valuation (which is how startups achieve Unicorn status).

Nor is it its annual revenue.

Actually, GRAIL has no revenue. And it won’t for a while.

What Were They Thinking?

I suppose this could be a sign of a tech bubble. Especially after Theranos’ miraculous technology proved to be little more than smoke and mirrors.

It’s fair to ask what the heck venture capital firms are thinking.

After all, just like Theranos, GRAIL is promising to transform the healthcare landscape. Yet, despite these unsettling parallels, respected investors and tech superstars have committed serious money to GRAIL.

Bill Gates and Jeff Bezos have invested.

From the medtech corporate world, Johnson & Johnson, Merck, Bristol-Myers Squibb and Varian Medical Systems have invested.

And ARCH Venture Partners and Sutter Hill Partners from the VC world have too.

So what is this new blood-testing technology GRAIL is dangling in front of investors that has proven so irresistible…?

It’s a blood test for cancer. One that would detect cancer in its early stages.

In these stages, Stage 1 and Stage 2, the survival rate is 70% to 90%, depending on the cancer type.

This is the “Holy Grail of Cancer Research” – a cure for cancer.

An Accidental Discovery

The chain of events that led to this technology began in 2013.

That’s when Illumina acquired Verinata Health. Verinata specializes in noninvasive prenatal testing (NIPT). The technology it uses isolates fetal DNA and screens for chromosomal abnormalities.

Its tests work extremely well. But a mysterious signal showed up for 20 babies. Further research discovered their secret: They detected tumor fragments known as cell-free DNA (cfDNA) circulating in the bloodstream of these babies.

Verinata’s prenatal tests were finding cancers with 100% accuracy.

A major breakthrough, to be sure, but also one with a big catch…

These cancers were late-stage, and it was unfortunately too late to help the patients.

A Science Worth Pursuing

So Illumina’s R&D team went to work trying to apply the science to early-stage cancer detection. They’ve made significant progress.

So much so that Illumina decided early last year to spin out its research effort into a separate startup called GRAIL.

GRAIL has built what it believes to be the highest-capacity DNA-sequencing lab in the world, where it plans to initially analyze blood samples from 10,000 participants. Eventually, it wants to scale to hundreds of thousands. It would use the data generated to develop tests on dozens of cancer types.

The science goes far deeper than traditional liquid biopsy sequencing. To detect cancer in its earliest stages requires sensitivity down to a handful of molecules in a tube of blood.

Every test would generate a terabyte of data.

Applied to the population in this country alone, the company would easily generate a zettabyte, or 1,000,000,000,000,000,000,000 bytes, of data – the scale of Facebook.

A Giant Task

The precision of the science… the scope of the testing… the scale of the big data generated…

It’s all unprecedented in medical technology.

If all goes well, the company would then have to successfully conduct large-scale clinical trials.

GRAIL faces a long and difficult series of challenges and obstacles. Its odds of ultimate success? Well below 50-50, I’d reckon.

On the other hand, what GRAIL is trying to do is the very essence of transformative. The overused word “disruptive” simply doesn’t do it justice.

Is GRAIL up to the task?

It’s already scaled from 40 ex-Illumina employees to 160.

And at the helm is Jeff Huber. He spent 12 years at Google and brings critical big data expertise to the company. All great things for a founder’s resume.

But it’s Jeff’s personal experience with cancer that outweighs any of his business or technical acumen.

His wife Laura was unexpectedly diagnosed with Stage 4 colon cancer in 2014. She was 46 and healthy. After 18 months of intense treatment, Laura passed away.

To me, it seems Jeff is personally motivated to make this technology work… a quality you can’t put down on paper.

For Healthcare, Transformative Times

With a history of cancer in my family, I know firsthand the terrible pain it causes. The odds may be against Jeff and GRAIL, but I’m rooting for them.

GRAIL is wrapping up its Series B round at the end of March. It’s a good investment for those who have gotten in. The risk is great, but the reward is greater.

There are other medtech startups trying to do great things. Perhaps not quite at the grandiose scale of GRAIL, but just a tick smaller.

Some of these companies will realize their visions. It’s why I’m so excited about this sector. It’s why we’ve added a couple of medtech companies to our portfolios, including one of our most recent additions, Reliant Immune Diagnostics.

Reliant is another company thinking big. We believe it could change everything to do with how we take care of our health.

When these medtech companies succeed, everyone becomes better off. It’s great for America. It’s great for the world.

Sometimes, early investing is about more than just early investing.

Good investing,

Andy Gordon
Founder, Early Investing